Financial Mail - - COVER STORY/ HOUSING MARKET - Joan Muller

ooba show that in the sec­ond quar­ter banks re­quired first-time home­buy­ers to put down an av­er­age cash de­posit of 12.3%. That equates to R115,378 on a house of R939,936 (ooba’s av­er­age en­try-level price).

So it comes as lit­tle sur­prise that the av­er­age age of ooba’s first-time home loan ap­pli­cant is now at a rel­a­tively high 34.

Apart from a cash de­posit, first-time buy­ers also have to stump up trans­ac­tion costs. For a house priced at R1m, the trans­ac­tion costs will add up as fol­lows, says Vera Nagte­gaal, ex­ec­u­tive head of, a fi­nan­cial ser­vices com­par­i­son web­site: R27,760 for trans­fer du­ties; R25,607 bond regis­tra­tion fees (on an R800,000 mort­gage) and R5,985 bond ini­ti­a­tion fees. With the de­posit that means the av­er­age first-time buyer needs about R175,000 in cash.

Then there is also the monthly re­pay­ment, which amounts to about R7,720 on an R800,000 home loan at a 10% in­ter­est rate (cur­rent prime) fi­nanced over 20 years. That means the av­er­age first-time buyer (and his/her spouse) need to earn a com­bined gross monthly in­come of at least R24,000 to af­ford an en­try-level home.

Nagte­gaal says home­own­er­ship has been placed fur­ther out of the reach of lower- and mid­dle-in­come earn­ers by steep in­creases in mu­nic­i­pal rates and util­ity costs in re­cent years. She notes that the cost of elec­tric­ity alone has es­ca­lated by 87% since the be­gin­ning of 2008. “The weak econ­omy and re­sul­tant slower pace at which young peo­ple are en­ter­ing the job mar­ket are other rea­sons why only 12.4% of all SA home­own­ers are now un­der the age of 30,” she says.

The slump in house sales has seem­ingly not yet trans­lated into fall­ing na­tional house prices — at least not in nom­i­nal terms. How­ever, the house-price in­dices of the banks and of data an­a­lyt­ics group Light­stone have dropped to the low sin­gle dig­its, which trans­lates into a real (af­ter-in­fla­tion) de­cline.

Ac­cord­ing to Light­stone av­er­age house­price growth is now at 3.8%, down from 4.7% for 2017. FNB’S data paints a sim­i­lar pic­ture, with av­er­age house-price growth slow­ing to 3.7% in the first nine months of 2018 (year on year). That’s down from 4.2% in 2017 and less than half the 8.1% peak recorded by FNB dur­ing 2014 (see graph).

Loos ex­pects price growth for 2018 as a whole to re­main at about 3%-4%, which should trans­late into a real de­cline of about - 1%. He says 2018 will be the fourth con­sec­u­tive year of slow­ing nom­i­nal house price growth and the third con­sec­u­tive year of real price de­cline.

Loos de­scribes the cur­rent slow­down as a “sec­ond post-bub­ble house-price cor­rec­tion phase”. That fol­lows a far more se­vere first cor­rec­tion phase in 2008/2009 in the af­ter­math of the global fi­nan­cial cri­sis, when prices dropped by about 10% in nom­i­nal terms and sales vol­umes more than halved from the boom of 2004-2007 (see graphic).

Home­own­ers should brace them­selves for a fur­ther steady de­cline in real house prices next year, given the like­li­hood of a still-stag­nant econ­omy and ris­ing in­ter­est rates. In fact, Loos be­lieves house prices are un­likely to re­cover in real terms un­til SA’S eco­nomic growth rate gets closer to 3%

(from 1.7% in 2017). Given SA’S un­ex­pected en­try into a tech­ni­cal re­ces­sion in the sec­ond quar­ter, it is any­one’s guess if and when that will hap­pen. Mean­while, Loos is stick­ing to a fore­cast of nom­i­nal house-price growth of no more than 3.7% a year un­til 2020.

A con­tin­ued weak hous­ing mar­ket is not only bad news for home­own­ers who may have to re­alise a loss on the value of their bricks and mor­tar in­vest­ment if forced to sell. It will also be felt by the fis­cus in the form of lower rev­enues from prop­erty trans­ac­tion costs. Lat­est fig­ures from the Na­tional Trea­sury show that trans­fer duty rev­enues have al­ready been in de­cline since mid-2017 with a year-on-year drop of 6.79% recorded in the three months to Au­gust this year.

But in­dus­try play­ers say it’s not all doom and gloom as any down­cy­cle presents buy­ing op­por­tu­ni­ties for savvy in­vestors.

Se­eff chair Sa­muel Se­eff says not­with­stand­ing the coun­try’s eco­nomic and po­lit­i­cal chal­lenges, there are many pos­i­tives for the prop­erty mar­ket. He refers to the prime in­ter­est rate of 10%, which is still way be­low lev­els com­pared with other pe­ri­ods of eco­nomic de­cline such as the 1990s, when in­ter­est rates surged to 25%. “And the banks are still grant­ing more bonds,” he adds. “At the same time, there are many mo­ti­vated sell­ers so it is a great time to buy and you don’t want to leave it too late.”

Gold­ing echoes the sen­ti­ment, say­ing his group has no­ticed an uptick in ac­tiv­ity in tra­di­tion­ally less pop­u­lar ar­eas such as the Kwazulu-natal south coast, Port El­iz­a­beth and smaller towns along the East­ern Cape coast, as well as the whale coast and Gar­den Route, the East Rand and Cape Town’s north­ern sub­urbs.

He says the mar­ket is un­der­go­ing a pe­riod of change in which the up­per end of the West­ern Cape will no longer be the pri­mary driver of hous­ing ac­tiv­ity. “It is now the turn of the more af­ford­able, less pop­u­lar towns and sub­urbs to re­cover.” Rent­ing is ex­pected to be­come more ex­pen­sive, but in­dus­try play­ers say it is still 30%-40% cheaper than own­ing

The “rent or buy” de­bate be­comes par­tic­u­larly rel­e­vant when times are tough, forc­ing both ten­ants and home­own­ers to weigh ac­com­mo­da­tion costs more care­fully. FNB prop­erty strate­gist John Loos says the bank’s lat­est sur­vey of es­tate agents sug­gests that a grow­ing pro­por­tion of as­pi­rant home­own­ers are hold­ing back. And, more in­ter­est­ing, there has been a spike in the num­ber of fi­nan­cially pressed home sell­ers opt­ing not to buy an­other prop­erty but to rent in­stead. The per­cent­age of sell­ers keen to rent their next home has jumped to 65.6% in the third quar­ter, up from 34% in early 2014 (see graph).

Loos says the trend is in line with the eco­nomic stress and gen­eral pes­simism among con­sumers. “It’s not only a re­ces­sion­ary econ­omy that has prompted more house­holds to put home buy­ing on the back

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